The IRS appears to believe they are being taken advantage of – by taxpayers! The IRS is tired of being abused, and they’ve taken a step toward stopping it. They say that too many pesky taxpayers are filing “frivolous” Offers in Compromise.

Now just ask yourself, shouldn’t taxpayers be ashamed for attempting to take advantage of the only Congress approved tax settlement program – a form of tax amnesty?

Uncle Sam says…
– You’ll Have to Pay to Play

On November 1, 2003, the Internal Revenue Service began charging a $150 application fee for the processing of most Offers In Compromise (OIC).

The IRS expects that this fee will help offset the cost of providing this service, as well as reduce the number of offers that are “frivolous” or filed inappropriately solely to “delay” IRS collection enforcement.

For anyone not familiar with the federal program, an Offer in Compromise is an agreement between a taxpayer and the IRS that allows the taxpayer to settle his or her IRS liabilities at a discount – sometimes for next to nothing.

Some Offers are exempt from the fee

Not all Offers are subject to the new fee. The following types of Offers are exempt from this fee:

If the Offer is submitted based solely on “doubt as to liability”; or

If the taxpayer’s total monthly income falls at or below income levels based on the Department of Health and Human Services poverty guidelines. The poverty guideline exception applies only to individuals.

Fee is applied to tax liability if Offer is accepted

While the fee will not be refunded if an Offer is withdrawn, rejected, or returned as non- processable after acceptance for processing, the payment of the fee will be taken into account in determining the acceptable amount of the Offer and therefore the taxpayer in total will pay no more than the taxpayer would have paid without the fee. Furthermore, no additional fee will be charged if a taxpayer resubmits an Offer that the IRS formerly rejected or returned in error.

Public Input

– Or putting it to the Public?

In public hearings on this new fee held earlier this year, a number of commentators urged that the fee should not be imposed until inefficiencies and errors in the processing of Offers are eliminated. Even though the IRS acknowledges that further improvements are needed in the Offer process (a gross understatement), IRS officials believe that the user fee should help reduce the number of frivolous Offers and the number of Offers that are either withdrawn, returned, or rejected because the Offer applicant would not provide adequate information for the IRS to process the Offer or would not offer an amount that reflects the taxpayer’s ability to pay.

I’ll review each of the IRS’ points below:

Frivolous Offers

– Or Not Enough IRS Help for Taxpayers?

The IRS believes that a large number of Offers being filed are “frivolous”. While my common sense, and my 18+ Years worth of experience with the IRS, would not allow me to believe that there are never any frivolous Offers filed, I believe that they are a small percentage of the total filed.

A lot of Offers are filed by taxpayers themselves who do not know how the Offer process works. These taxpayers, since they do not have the needed experience, are like sheep to the slaughter for the IRS. Their odds of the average taxpayer being able to successfully complete the Offer process is very slim indeed. But does this mean that their Offer is “frivolous”? I think not.

There are also some bogus, unscrupulous tax “professionals” out there that file poorly done Offers which are also doomed for failure. Taxpayers should avoid these “professionals” at all costs – some of them advertise very widely. For their own protection a taxpayer should never hire anyone unless the tax professional can provide verifiable proof that they are licensed and experienced in the area of tax controversies. Taxpayers should diligently verify the credentials of any person or firm they are considering hiring.

Despite the imposition of the new Offer fee, our office expects the IRS to handle Offers in the same manner as before – working very slowly, while putting up as many procedural sand bags as possible. Also, we do not expect any reduction in the amount of processing time by the IRS prior to the issuance of a mutually acceptable Offer. For these reasons as well as the imposition of the $150 application fee by IRS, we recommend that taxpayers who want to pursue this process should engage a tax professional who is very experienced in this tricky area.

In a nut shell, we see the IRS conducting business as usual, while charging taxpayers $150 to endure the same bad service.

Not Enough Information to Process the Offer

– Or Not Enough Time to Respond to IRS Requests for Informaton

The IRS’ second claim is that taxpayers or their representatives are providing inadequate information to them and that they are not able to process the Offer due to that.

While this may be true on occasion, more often than not, what we see at our firm is the IRS making repetitive requests for the same information. Their justification for multiple requests is that their information is “old”. Well, it wouldn’t be old if they would work the cases in a timely manner. Also, they need to check their own file, often they ask for information which they already have.

Over this last year the IRS has begun allowing less and less time to respond to their requests for information. This puts them in the position to be able to say that the tax payers didn’t respond in a timely manner to their requests for information. The plain truth is that they are not allowing tax payers sufficient time to respond.

The IRS says that the reason they are demanding that the information be provided in such a short time frame is so they can work the Offer faster. This is pure baloney – the truth is that lengthy periods of time elapse between the IRS’ requests for information. If there is a time period that needs to be shortened, it is the time the IRS sits on a file, seemingly doing nothing, until it suddenly decides to ask for a more information – which of course has to be responded to in a big hurry. Why doesn’t the IRS hurry up and respond back to us once they have received our information – instead of taking their sweet time like they most often do?

The IRS says it Needs More Employees to process the Offers

– They don’t need more help, they just need to get to work!

What are some real solutions to the IRS Offer programs problems:

Let them help themselves by working smart, not wastefully.

Allow adequate time for taxpayers to respond to requests for information.

Don’t wait months to make full requests for information, such that the earlier information is stale and worthless.

Don’t sit on supplied information until it gets old and stale

Conclusion

The Offer program has it problems. But it is still the best solution available for a lot of tax problems. Yes, dealing with the IRS Offer program is a rough and tumble process, but it is often the best game in town. We don’t mind going to bat against the IRS.